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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
                      FORM 10-Q
(Mark One)
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2023
OR
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
    For the transition period from ___________  to   ____________        
                         Commission File Number:1-11961
CARRIAGE SERVICES, INC.
(Exact name of registrant as specified in its charter)
Delaware76-0423828
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
3040 Post Oak Boulevard, Suite 300
Houston, Texas, 77056
(Address of principal executive offices)
(713) 332-8400
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common Stock, par value $.01 per shareCSVNew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Securities Exchange Act of 1934.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  
The number of shares of the registrant’s Common Stock, $.01 par value per share, outstanding as of November 3, 2023 was 14,981,459.





                                            
CARRIAGE SERVICES, INC.
INDEX
 
Page
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
- 2 -

                                            
PART I – FINANCIAL INFORMATION
Item 1.Financial Statements.
CARRIAGE SERVICES, INC.
CONSOLIDATED BALANCE SHEET
(unaudited and in thousands, except share data)
December 31, 2022September 30, 2023
ASSETS
Current assets:
Cash and cash equivalents$1,170 $1,675 
Accounts receivable, net24,458 25,524 
Inventories7,613 9,088 
Prepaid and other current assets4,733 4,030 
Total current assets37,974 40,317 
Preneed cemetery trust investments95,065 92,583 
Preneed funeral trust investments104,553 106,433 
Preneed cemetery receivables, net26,672 34,332 
Receivables from preneed funeral trusts, net19,976 21,295 
Property, plant and equipment, net278,106 288,407 
Cemetery property, net 104,170 113,199 
Goodwill410,137 423,643 
Intangible and other non-current assets, net32,930 37,221 
Operating lease right-of-use assets17,060 15,987 
Cemetery perpetual care trust investments66,307 82,042 
Total assets$1,192,950 $1,255,459 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of debt and lease obligations$3,172 $3,811 
Accounts payable11,675 11,558 
Accrued and other liabilities30,621 37,977 
Total current liabilities45,468 53,346 
Acquisition debt, net of current portion3,438 3,335 
Credit facility188,836 185,856 
Senior notes395,243 395,737 
Obligations under finance leases, net of current portion4,743 6,724 
Obligations under operating leases, net of current portion17,315 15,736 
Deferred preneed cemetery revenue51,746 62,384 
Deferred preneed funeral revenue32,029 40,343 
Deferred tax liability48,820 48,907 
Other long-term liabilities3,065 1,504 
Deferred preneed cemetery receipts held in trust95,065 92,583 
Deferred preneed funeral receipts held in trust104,553 106,433 
Care trusts’ corpus65,495 81,299 
Total liabilities1,055,816 1,094,187 
Commitments and contingencies:
Stockholders’ equity:
Common stock, $0.01 par value; 80,000,000 shares authorized and 26,359,876 and 26,609,277 shares issued, respectively and 14,732,058 and 14,981,459 shares outstanding, respectively
264 266 
Additional paid-in capital238,780 241,141 
Retained earnings176,843 198,618 
Treasury stock, at cost; 11,627,818 shares
(278,753)(278,753)
Total stockholders’ equity137,134 161,272 
Total liabilities and stockholders’ equity$1,192,950 $1,255,459 
The accompanying condensed notes are an integral part of these Consolidated Financial Statements.
- 3 -

                                            
CARRIAGE SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited and in thousands, except per share data)
Three months ended September 30,Nine months ended September 30,
2022202320222023
Revenue:
Service revenue$42,992 $43,708 $135,279 $136,437 
Property and merchandise revenue37,607 40,287 120,495 125,928 
Other revenue6,898 6,499 20,484 21,321 
87,497 90,494 276,258 283,686 
Field costs and expenses:
Cost of service22,317 22,650 65,805 69,202 
Cost of merchandise28,668 30,302 87,304 92,255 
Cemetery property amortization1,278 1,318 4,314 4,411 
Field depreciation expense3,281 3,634 9,831 10,546 
Regional and unallocated funeral and cemetery costs5,096 3,771 17,409 13,339 
Other expenses1,259 1,407 3,807 4,264 
61,899 63,082 188,470 194,017 
Gross profit25,598 27,412 87,788 89,669 
Corporate costs and expenses:
General, administrative and other10,383 11,303 28,123 31,682 
Net (gain) loss on divestitures, disposals and impairments charges(7)423 (433)929 
Operating income15,222 15,686 60,098 57,058 
Interest expense6,678 9,278 18,208 27,213 
Net gain on property damage, net of insurance claims (379)(3,275)(343)
Other, net (95)11 (78)(636)
Income before income taxes8,639 6,776 45,243 30,824 
Expense for income taxes2,640 2,058 12,578 8,899 
Tax adjustment related to discrete items139 73 (496)150 
Total expense for income taxes2,779 2,131 12,082 9,049 
Net income$5,860 $4,645 $33,161 $21,775 
Basic earnings per common share:$0.40 $0.31 $2.22 $1.46 
Diluted earnings per common share:$0.38 $0.30 $2.09 $1.39 
Dividends declared per common share:$0.1125 $0.1125 $0.3375 $0.3375 
Weighted average number of common and common equivalent shares outstanding:
Basic14,689 14,820 14,908 14,791 
Diluted15,537 15,514 15,849 15,480 
The accompanying condensed notes are an integral part of these Consolidated Financial Statements.
- 4 -

                                            
CARRIAGE SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited and in thousands)
 Nine months ended September 30,
 20222023
Cash flows from operating activities:
Net income$33,161 $21,775 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization14,611 15,623 
Provision for credit losses2,292 2,314 
Stock-based compensation expense4,577 6,155 
Deferred income tax expense 1,699 87 
Amortization of intangibles957 982 
Amortization of debt issuance costs397 524 
Amortization and accretion of debt 368 384 
Net (gain) loss on divestitures, disposals and impairment charges(433)929 
Net gain on property damage, net of insurance claims(3,275)(343)
Gain on sale of real property (658)
Other(153) 
Changes in operating assets and liabilities that provided (used) cash:
Accounts and preneed receivables(3,053)(4,607)
Inventories, prepaid and other current assets2,785 (52)
Intangible and other non-current assets(1,381)(2,285)
Preneed funeral and cemetery trust investments(12,585)990 
Accounts payable(2,451)(117)
Accrued and other liabilities(3,080)5,297 
Incentive payment from vendor 6,000 
Deferred preneed funeral and cemetery revenue2,852 11,110 
Deferred preneed funeral and cemetery receipts held in trust12,758 (2,259)
Net cash provided by operating activities50,046 61,849 
Cash flows from investing activities:
Acquisitions of businesses and real property(8,876)(44,000)
Proceeds from divestitures and sale of other assets4,313 2,296 
Proceeds from insurance claims2,209 1,388 
Capital expenditures(20,346)(13,069)
Net cash used in investing activities(22,700)(53,385)
Cash flows from financing activities:
Borrowings from the credit facility114,600 68,100 
Payments against the credit facility(101,000)(71,500)
Payment of debt issuance costs for the credit facility and senior notes(339) 
Payments on acquisition debt and obligations under finance leases(314)(491)
Proceeds from the exercise of stock options and employee stock purchase plan contributions1,438 1,207 
Taxes paid on restricted stock vestings and exercise of stock options(287)(252)
Dividends paid on common stock(5,108)(5,023)
Purchase of treasury stock(36,663) 
Net cash used in financing activities(27,673)(7,959)
Net increase (decrease) in cash and cash equivalents(327)505 
Cash and cash equivalents at beginning of period1,148 1,170 
Cash and cash equivalents at end of period$821 $1,675 
The accompanying condensed notes are an integral part of these Consolidated Financial Statements.
- 5 -

                                            
CARRIAGE SERVICES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(unaudited and in thousands)
Three months ended September 30, 2022
Shares
Outstanding
Common
Stock
Additional
Paid-in
Capital
Retained
Earnings
Treasury
Stock
Total
Balance – June 30, 202214,698 $263 $238,571 $162,763 $(278,753)$122,844 
Net income— — — 5,860 — 5,860 
Issuance of common stock from employee stock purchase plan14 — 377 — — 377 
Issuance of common stock to directors and board advisor2 — 76 — — 76 
Cancellation and surrender of restricted stock(1)—  — —  
Stock-based compensation expense— — 1,416 — — 1,416 
Dividends on common stock— — (1,653)— — (1,653)
Balance – September 30, 202214,713 $263 $238,787 $168,623 $(278,753)$128,920 

Three months ended September 30, 2023
Shares
Outstanding
Common
Stock
Additional
Paid-in
Capital
Retained
Earnings
Treasury
Stock
Total
Balance – June 30, 202314,958 $266 $240,681 $193,973 $(278,753)$156,167 
Net income— — — 4,645 — 4,645 
Issuance of common stock from employee stock purchase plan12 — 284 — — 284 
Issuance of common stock to directors and board advisor5 — 161 — — 161 
Exercise of stock options7 — (133)— — (133)
Stock-based compensation expense— — 1,831 — — 1,831 
Dividends on common stock— — (1,683)— — (1,683)
Balance – September 30, 202314,982 $266 $241,141 $198,618 $(278,753)$161,272 
- 6 -

                                            
CARRIAGE SERVICES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(unaudited and in thousands)
Nine months ended September 30, 2022
Shares
Outstanding
Common
Stock
Additional
Paid-in
Capital
Retained
Earnings
Treasury
Stock
Total
Balance – December 31, 202115,332 $263 $236,809 $135,462 $(244,519)$128,015 
Net income— — — 33,161 — 33,161 
Issuance of common stock from employee stock purchase plan39  1,378 — — 1,378 
Issuance of common stock to directors and board advisor7 — 322 — — 322 
Exercise of stock options9 — (22)— — (22)
Cancellation and surrender of restricted stock(6)— (205)— — (205)
Stock-based compensation expense— — 4,255 — — 4,255 
Dividends on common stock— — (5,108)— — (5,108)
Treasury stock acquired(695)— — — (34,234)(34,234)
Other27 — 1,358 — — 1,358 
Balance – September 30, 202214,713 $263 $238,787 $168,623 $(278,753)$128,920 

Nine months ended September 30, 2023
Shares
Outstanding
Common
Stock
Additional
Paid-in
Capital
Retained
Earnings
Treasury
Stock
Total
Balance – December 31, 202214,732 $264 $238,780 $176,843 $(278,753)$137,134 
Net income— — — 21,775 — 21,775 
Issuance of common stock from employee stock purchase plan50 — 1,207 — — 1,207 
Issuance of common stock to directors and board advisor11 — 338 — — 338 
Issuance of common stock to former executive30 — 826 — — 826 
Issuance of restricted stock142 2 (2)— — — 
Exercise of stock options12 — (174)— — (174)
Cancellation and surrender of common and restricted stock(3)— (78)— — (78)
Stock-based compensation expense— — 4,991 — — 4,991 
Dividends on common stock— — (5,023)— — (5,023)
Other8 — 276 — — 276 
Balance – September 30, 202314,982 $266 $241,141 $198,618 $(278,753)$161,272 
The accompanying condensed notes are an integral part of these Consolidated Financial Statements.









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CARRIAGE SERVICES, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1.BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
Carriage Services, Inc. (“Carriage,” the “Company,” “we,” “us,” or “our”) is a leading provider of funeral and cemetery services and merchandise in the United States. Our operations are reported in two business segments: Funeral Home operations, which currently accounts for approximately 70% of our total revenue and Cemetery operations, which currently accounts for approximately 30% of our total revenue. At September 30, 2023, we operated 171 funeral homes in 26 states and 32 cemeteries in 11 states.
Our funeral home operations are principally service businesses that generate revenue from sales of burial and cremation services and related merchandise, such as caskets and urns. Funeral services include consultation, the removal and preparation of remains, the sale of caskets and related funeral merchandise, the use of funeral home facilities for visitation and memorial services and transportation services. We provide funeral services and products on both an “atneed” (time of death) and “preneed” (planned prior to death) basis.
Our cemetery operations generate revenue primarily through sales of cemetery interment rights (primarily grave sites, lawn crypts, mausoleum spaces and niches), related cemetery merchandise (such as memorial markers, outer burial containers and monuments) and services (interments, inurnments and installation of cemetery merchandise). We provide cemetery services and products on both an atneed and preneed basis.
Principles of Consolidation and Interim Condensed Disclosures
Our unaudited consolidated financial statements include the Company and its subsidiaries. All intercompany balances and transactions have been eliminated. Our interim consolidated financial statements are unaudited but include all adjustments, which consist of normal, recurring accruals, that are necessary for a fair presentation of our financial position and results of operations as of and for the interim periods presented.
There have been no material changes in our accounting policies previously disclosed in Part II, Item 8 “Financial Statements and Supplementary Data” in Note 1 in our Annual Report on Form 10-K for the year ended December 31, 2022. In addition, our unaudited consolidated financial statements have been prepared in a manner consistent with the accounting principles described in our Annual Report on Form 10-K for the year ended December 31, 2022 unless otherwise disclosed herein, and should be read in conjunction therewith.
Use of Estimates
The preparation of our Consolidated Financial Statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses. On an ongoing basis, we evaluate our critical estimates and judgments, which include those related to the impairment of goodwill and the fair value measurements used in business combinations. These policies are considered critical because they may result in fluctuations in our reported results from period to period due to the significant judgments, estimates and assumptions about complex and inherently uncertain matters and because the use of different judgments, assumptions or estimates could have a material impact on our financial condition or results of operations. Actual results may differ from these estimates and such estimates may change if the underlying conditions or assumptions change. Historical performance should not be viewed as indicative of future performance because there can be no assurance the margins, operating income and net earnings, as a percentage of revenue, will be consistent from period to period.
Cash and Cash Equivalents
We consider all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.
Inventory
Inventory consists primarily of caskets, outer burial containers and cemetery monuments and markers and is recorded at the lower of its cost basis or net realizable value. Inventory is relieved using specific identification in fulfillment of performance obligations on our contracts.
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Deferred Revenue
During the nine months ended September 30, 2023, we withdrew $8.6 million of realized capital gains and earnings from our preneed funeral and cemetery trust investments. In certain states, we are allowed to make these withdrawals prior to the delivery of preneed merchandise and service contracts. The realized capital gains and earnings withdrawn increase our cash flow from operations, but are not recognized as revenue in our Consolidated Statements of Operations, however, they reduce our Preneed funeral trust investments and Preneed cemetery trust investments and increase our Deferred preneed funeral revenue and Deferred preneed cemetery revenue.
Additionally, during the nine months ended September 30, 2023, we received a $6.0 million incentive payment from a vendor for entering into a strategic partnership agreement to market and sell prearranged funeral services in the future, which increased our cash flow from operations and Deferred preneed funeral revenue. The incentive payment will be deferred until we complete our implementation of the program and begin selling prearranged funeral services.
Goodwill
The excess of the purchase price over the fair value of identifiable net assets of funeral home businesses and cemeteries we acquire is recorded as goodwill. Goodwill has an indefinite life and is not subject to amortization. As such, we test goodwill for impairment on an annual basis as of August 31st each year. Under current guidance, we are permitted to first assess qualitative factors to determine whether it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform a quantitative goodwill impairment test.
We performed our most recent annual goodwill impairment test as of August 31, 2023. We intend to perform a quantitative impairment test at least once every three years and perform a qualitative assessment during the remaining two years. We conducted a quantitative assessment in 2022 and a qualitative assessment in 2023. In addition to our annual test, we assess the impairment of goodwill whenever events or changes in circumstances indicate that the carrying value of a reporting unit may be greater than fair value. Factors that could trigger an interim impairment review include, but are not limited to, significant negative industry or economic trends and significant adverse changes in the business climate, which may be indicated by a decline in our market capitalization or decline in operating results.
Our quantitative goodwill impairment test involves estimates and management judgment. In the quantitative analysis, we compare the fair value of each reporting unit to its carrying value, including goodwill. If the fair value of the reporting unit exceeds its carrying amount, the goodwill of that reporting unit is not considered impaired. We determine fair value for each reporting unit using both an income approach, weighted 90%, and a market approach, weighted 10%. Our methodology for determining an income-based fair value is based on discounting projected future cash flows. The projected future cash flows include assumptions concerning future operating performance and economic conditions that may differ from actual future cash flows discounted at our weighted average cost of capital based on market participant assumptions. Our methodology for determining a market approach fair value utilizes the guideline public company method, in which we rely on market multiples of comparable companies operating in the same industry as the individual reporting units. In accordance with the guidance, if the fair value of the reporting unit is less than its carrying amount an impairment charge is recorded in an amount equal to the difference.
For our 2023 annual qualitative assessment, we determined that there were no factors that would indicate the need to perform an additional quantitative goodwill impairment test. We concluded that it is more-likely-than-not that the fair value of our reporting units is greater than their carrying value and thus there was no impairment to goodwill. For our 2022 annual quantitative assessment, there was no impairment to goodwill as the fair value of our reporting units was greater than the carrying value.
When we divest a portion of a reporting unit that constitutes a business in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”), we allocate goodwill associated with that business to be included in the gain or loss on divestiture. The goodwill allocated is based on the relative fair value of the business being divested and the portion of the reporting unit that will be retained. Additionally, after each divestiture, we will test the goodwill remaining in the portion of the reporting unit to be retained for impairment using a qualitative assessment unless we deem a quantitative assessment to be appropriate to ensure the fair value of our reporting units is greater than their carrying value.
See Note 4 to the Consolidated Financial Statements included herein for additional information related to our goodwill.
Intangible Assets
Our intangible assets include tradenames resulting from acquisitions and are included in Intangible and other non-current assets, net on our Consolidated Balance Sheet. Our tradenames are considered to have an indefinite life and are not subject to amortization. As such, we test our intangible assets for impairment on an annual basis as of August 31st each year. Under current guidance, we are permitted to first assess qualitative factors to determine whether it is more-likely-than-not that the fair
- 9 -

                                            
value of the tradename is less than its carrying amount as a basis for determining whether it is necessary to perform a quantitative impairment test.
We performed our most recent annual intangible assets impairment test as of August 31, 2023. We intend to perform a quantitative impairment test at least once every three years and perform a qualitative assessment during the remaining two years. We conducted a quantitative assessment in 2022 and a qualitative assessment in 2023. In addition to our intangible assets annual test, we assess the impairment of intangible assets whenever certain events or changes in circumstances indicate that the carrying value of the intangible asset may be greater than the fair value. Factors that could trigger an interim impairment review include, but are not limited to, significant under-performance relative to historical or projected future operating results and significant negative industry or economic trends.
Our quantitative intangible asset impairment test involves estimates and management judgment. Our quantitative analysis is performed using the relief from royalty method, which measures the tradenames by determining the value of the royalties that we are relieved from paying due to our ownership of the asset. We determine the fair value of the asset by discounting the cash flows that represent a savings in lieu of paying a royalty fee for use of the tradename. The discounted cash flow valuation uses projections of future cash flows and includes assumptions concerning future operating performance and economic conditions that may differ from actual future cash flows and the determination and application of an appropriate royalty rate and discount rate. To estimate the royalty rates for the individual tradename, we mainly rely on the profit split method, but also consider the comparable third-party license agreements and the return on asset method. A scorecard is used to assess the relative strength of the individual tradename to further adjust the royalty rates selected under the profit-split method for qualitative factors. In accordance with the guidance, if the fair value of the tradename is less than its carrying amount, then an impairment charge is recorded in an amount equal to the difference.
As a result of our 2023 qualitative assessment, we determined that there were factors that would indicate the need to perform an additional quantitative impairment test for certain funeral home businesses. As a result of this additional quantitative impairment test, we recorded an impairment to the tradenames for two of our funeral homes of $0.2 million, during the three and nine months ended September 30, 2023, as the carrying amount of these tradenames exceeded the fair value. For our 2022 assessment, there was no impairment to intangibles assets.
See Note 10 to the Consolidated Financial Statements included herein for additional information related to our intangible assets.
Property, Plant and Equipment
Property, plant and equipment is comprised of the following (in thousands):
December 31, 2022September 30, 2023
Land$84,405 $85,660 
Buildings and improvements251,778 262,856 
Furniture, equipment and automobiles70,522 76,653 
Property, plant and equipment, at cost406,705 425,169 
Less: accumulated depreciation(128,599)(136,762)
Property, plant and equipment, net$278,106 $288,407 
During the nine months ended September 30, 2023, we acquired $12.8 million of property, plant and equipment related to our acquisition of a business located in Bakersfield, CA, as more fully described in Note 3 to the Consolidated Financial Statements. Additionally, we sold real property for $1.2 million, with a carrying value of $0.6 million, resulting in a gain on the sale of $0.6 million. We also divested one funeral home that had a carrying value of property, plant and equipment of $0.3 million, which was included in the loss on the sale of divestitures and recorded in Net (gain) loss on divestitures, disposals and impairment charges on our Consolidated Statements of Operations.
During the nine months ended September 30, 2022, we acquired real property for $5.6 million. Additionally, we sold real property for $3.3 million, with a carrying value of $1.8 million, resulting in a gain on the sale of $1.4 million. We also divested two funeral homes that had a carrying value of property, plant and equipment of $0.7 million, which was included in the loss on the sale of divestitures and recorded in Net (gain) loss on divestitures, disposals and impairment charges.
Our growth and maintenance capital expenditures totaled $5.3 million and $2.4 million for the three months ended September 30, 2022 and 2023, respectively and $15.1 million and $7.9 million for the nine months ended September 30, 2022 and 2023, respectively, for property, plant and equipment. In addition, we recorded depreciation expense of $3.4 million and $3.8 million for the three months ended September 30, 2022 and 2023, respectively and $10.1 million and $11.0 million for the nine months ended September 30, 2022 and 2023, respectively.
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Cemetery Property
Cemetery property was $104.2 million and $113.2 million, net of accumulated amortization of $59.0 million and $63.0 million at December 31, 2022 and September 30, 2023, respectively. When cemetery property is sold, the value of the cemetery property (interment right costs) is expensed as amortization using the specific identification method in the period in which the sale of the interment right is recognized as revenue. Our growth capital expenditures for cemetery property development totaled $1.5 million and $1.6 million for the three months ended September 30, 2022 and 2023 and $5.2 million and $5.1 million for the nine months ended September 30, 2022 and 2023, respectively. We recorded amortization expense for cemetery interment rights of $1.3 million for both the three months ended September 30, 2022 and 2023 and $4.3 million and $4.4 million for the nine months ended September 30, 2022 and 2023, respectively.
During the nine months ended September 30, 2023, we acquired cemetery property for $9.0 million related to our acquisition of a business located in Bakersfield, CA, as more fully described in Note 3 to the Consolidated Financial Statements. We also divested two cemeteries that had a carrying value of cemetery property of $0.8 million, which was included in the loss on the sale of divestitures and recorded in Net (gain) loss on divestitures, disposals and impairment charges on our Consolidated Statements of Operations.
Income Taxes
Income tax expense was $2.8 million and $2.1 million for the three months ended September 30, 2022 and 2023, respectively and $12.1 million and $9.0 million for the nine months ended September 30, 2022 and 2023, respectively. Our operating tax rate before discrete items was 30.6% and 30.4% for the three months ended September 30, 2022 and 2023, respectively and 27.8% and 28.9% for the nine months ended September 30, 2022 and 2023, respectively.
Subsequent Events
We have evaluated events and transactions during the period subsequent to September 30, 2023 through the date the financial statements were issued for potential recognition or disclosure in the accompanying financial statements covered by this report.
2.RECENTLY ISSUED ACCOUNTING STANDARDS
Credit Losses - Vintage Disclosures
In March 2022, the FASB issued ASU, Financial Instruments - Credit Losses (“Topic 326”) to make the requirement to disclose gross write-offs by class of financing receivable and major security type consistent for all public business entities. The amendment in this update provides specific guidance on the disclosure for current period write-offs by year of origination for financing receivables. This amendment is effective for fiscal years beginning after December 15, 2022, and therefore was effective for us beginning January 1, 2023. Our adoption of these amendments had no impact on our consolidated financial statements.
3. BUSINESS COMBINATIONS
Tangible and intangible assets acquired and liabilities assumed are recorded at fair value and goodwill is recognized for any difference between the price of the acquisition and fair value. We recognize the assets acquired, the liabilities assumed and any non-controlling interest in the acquiree at the acquisition date, measured at the fair value as of that date. Acquisition related costs are recognized separately from the acquisition and are expensed as incurred. We customarily estimate related transaction costs known at closing. To the extent that information not available to us at the closing date subsequently becomes available during the measurement period, we may adjust goodwill, intangible assets, assets or liabilities associated with the acquisition.
On March 22, 2023, we acquired a business consisting of three funeral homes, two cemeteries and one cremation focused business in the Bakersfield, California area for $44.0 million in cash. We acquired substantially all of the assets and assumed certain operating liabilities of this business.
The pro forma impact of this acquisition on prior periods is not presented, as the impact is not significant to our reported results. The results of the acquired business are reflected in our Consolidated Statements of Operations from the date of acquisition.
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The following table summarizes the breakdown of the purchase price allocation for our Bakersfield, CA business acquisition (in thousands):
Initial Purchase Price AllocationAdjustmentsAdjusted Purchase Price Allocation
Current assets$7,087 $131 $7,218 
Preneed trust assets 11,428 11,428 
Property, plant & equipment12,577 245 12,822 
Cemetery property9,035 — 9,035 
Goodwill13,612 (106)13,506 
Intangible and other non-current assets3,763 — 3,763 
Assumed liabilities(300)(66)(366)
Preneed trust liabilities (11,428)(11,428)
Deferred revenue(1,774)(204)(1,978)
Purchase price$44,000 $ $44,000 
The current assets relate to accounts receivable and inventory. The intangible and other non-current assets relate to the fair value of tradenames and right-of-use operating lease assets. The assumed liabilities relate to operating lease obligations and commissions payable. As of September 30, 2023, our accounting for this acquisition is complete.
The following table summarizes the fair value of the assets acquired and liabilities assumed for this business (in thousands):
Acquisition DateType of BusinessMarketAssets Acquired (Excluding
Goodwill)
Goodwill
Recorded
Liabilities
and Debt
Assumed
March 22, 2023Three Funeral Homes, Two Cemeteries and One Cremation Focused BusinessBakersfield, CA$44,266 $13,506 $(13,772)
On August 8, 2022, we acquired a business consisting of two funeral homes in Kissimmee, FL for $6.3 million in cash. We acquired substantially all of the assets and assumed certain operating liabilities of this business.
The following table summarizes the breakdown of the purchase price allocation for our Kissimmee, FL business acquisition (in thousands):
Purchase Price Allocation
Current assets$28 
Preneed trust assets1,439 
Property, plant & equipment2,986 
Goodwill2,694 
Intangible and other non-current assets542 
Preneed trust liabilities(1,439)
Purchase price$6,250 
The intangible and other non-current assets relate to the fair value of tradenames and non-compete agreements.
The following table summarizes the fair value of the assets acquired and liabilities assumed for our Kissimmee, FL business acquisition (in thousands):
Acquisition DateType of BusinessMarketAssets
Acquired
(Excluding
Goodwill)
Goodwill
Recorded
Liabilities
and Debt
Assumed
August 8, 2022Two Funeral HomesKissimmee, FL$4,995 $2,694 $(1,439)
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4.GOODWILL
The following table presents changes in goodwill in the accompanying Consolidated Balance Sheet (in thousands):
December 31, 2022September 30, 2023
Goodwill at the beginning of the period$391,972 $410,137 
Increase in goodwill related to acquisitions19,511 13,506 
Decrease in goodwill related to divestitures(901) 
Decrease in goodwill related to assets held for sale(445) 
Goodwill at the end of the period$410,137 $423,643 
During the nine months ended September 30, 2023, we recognized $13.5 million in goodwill related to our acquisition of a business located in Bakersfield, CA, of which $4.5 million was allocated to our cemetery segment and $9.0 million was allocated to our funeral home segment.
See Note 1 to the Consolidated Financial Statements included herein, for a discussion of the methodology used for our
goodwill impairment test.
5.DIVESTED OPERATIONS
During the three months ended September 30, 2023, we sold one funeral home for $0.3 million. During the nine months ended September 30, 2023, we sold two funeral homes and two cemeteries for an aggregate of $1.1 million and merged one funeral home with another business we own in a nearby market.
During the three months ended September 30, 2022, we did not sell any funeral homes or cemeteries. During the nine months ended September 30, 2022, we sold two funeral homes for an aggregate of $0.9 million and merged one funeral home with another business we own in a nearby market.
The operating results of these divested funeral homes and cemeteries are reflected on our Consolidated Statements of Operations as shown in the table below (in thousands):
Three months ended September 30,Nine months ended September 30,
2022202320222023
Revenue$ $18 $296 $242 
Operating income 8 25 3 
Loss on divestitures(1)
 (24)(703)(107)
Income tax benefit 5 188 30 
Net loss from divested operations, after tax$ $(11)$(490)$(74)
(1)
Loss on divestitures is recorded in Net (gain) loss on divestitures, disposals and impairments charges on our Consolidated Statements of Operations.
6.RECEIVABLES
Accounts Receivable
Our funeral receivables are recorded in Accounts receivable, net and primarily consist of amounts due for funeral services already performed.
Atneed cemetery receivables and preneed cemetery receivables with payments expected to be received within one year from the balance sheet date are also recorded in Accounts receivable, net. Preneed cemetery receivables with payments expected to be received beyond one year from the balance sheet date are recorded in Preneed cemetery receivables, net.
Accounts receivable is comprised of the following (in thousands):
September 30, 2023
FuneralCemeteryCorporateTotal
Trade and financed receivables$7,983 $18,240 $ $26,223 
Other receivables336 391 100 827 
Allowance for credit losses(285)(1,241) (1,526)
Accounts receivable, net$8,034 $17,390 $100 $25,524 
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December 31, 2022
FuneralCemeteryCorporateTotal
Trade and financed receivables$9,518 $14,429 $ $23,947 
Other receivables643 833 48 1,524 
Allowance for credit losses(311)(702) (1,013)
Accounts receivable, net$9,850 $14,560 $48 $24,458 
Other receivables include supplier rebates, commissions due from third party insurance companies and perpetual care income receivables. We do not provide an allowance for credit losses for these receivables as we have historically not had any collectability issues nor do we expect any in the foreseeable future.
The following table summarizes the activity in our allowance for credit losses by segment (in thousands):
January 1, 2023Provision for Credit LossesWrite OffsRecoveriesSeptember 30, 2023
Trade and financed receivables:
Funeral$(311)$(858)$1,745 $(861)$(285)
Cemetery(702)(548)9  (1,241)
Total allowance for credit losses on trade and financed receivables$(1,013)$(1,406)$1,754 $(861)$(1,526)
Balances due on undelivered preneed funeral trust contracts have been reclassified to reduce Deferred preneed funeral revenue on our Consolidated Balance Sheet of $8.9 million and $10.7 million at December 31, 2022 and September 30, 2023, respectively. As these performance obligations are to be completed after the date of death, we cannot quantify the recognition of revenue in future periods. However, we estimate an average maturity period of ten years for preneed funeral contracts.
Preneed Cemetery Receivables
Our preneed cemetery receivables are comprised of the following (in thousands):
December 31, 2022September 30, 2023
Interment rights$45,351 $58,032 
Merchandise and services8,585 10,574 
Unearned finance charges4,894 5,407 
Preneed cemetery receivables$58,830 $74,013 
The components of our preneed cemetery receivables are as follows (in thousands):
December 31, 2022September 30, 2023
Preneed cemetery receivables$58,830 $74,013 
Less: unearned finance charges(4,894)(5,407)
Preneed cemetery receivables, at amortized cost$53,936 $68,606 
Less: allowance for credit losses(1,985)(3,548)
Less: balances due on undelivered cemetery preneed contracts(11,552)(13,727)
Less: amounts in accounts receivable(13,727)(16,999)
Preneed cemetery receivables, net$26,672 $34,332 
The following table summarizes the activity in our allowance for credit losses for Preneed cemetery receivables, net (in thousands):
January 1, 2023Provision for Credit LossesWrite OffsSeptember 30, 2023
Total allowance for credit losses on Preneed cemetery receivables, net
$(1,283)$(908)$(116)$(2,307)
The amortized cost basis of our preneed cemetery receivables by year of origination at September 30, 2023 is as follows (in thousands):
20232022202120202019PriorTotal
Total preneed cemetery receivables, at amortized cost$27,143 $21,505 $11,134 $5,312 $1,909 $1,603 $68,606 
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The aging of past due preneed cemetery receivables at September 30, 2023 is as follows (in thousands):
31-60
Past Due
61-90
Past Due
91-120
Past Due
>120
Past Due
Total Past
Due
CurrentTotal
Recognized revenue$1,174 $739 $648 $3,686 $6,247 $48,632 $54,879 
Deferred revenue281 294 124 1,292 1,991 17,143 19,134 
Total contracts$1,455 $1,033 $772 $4,978 $8,238 $65,775 $74,013 
Balances due on undelivered preneed cemetery contracts have been reclassified to reduce Deferred preneed cemetery revenue on our Consolidated Balance Sheet. The transaction price allocated to preneed merchandise and service performance obligations that were unfulfilled were $11.6 million and $13.7 million at December 31, 2022 and September 30, 2023, respectively. As these performance obligations are to be completed after the date of death, we cannot quantify the recognition of revenue in future periods. However, we estimate an average maturity period of eight years for preneed cemetery contracts.
7.FAIR VALUE MEASUREMENTS
We evaluated our financial assets and liabilities for those that met the criteria of the disclosure requirements and fair value framework. The carrying values of cash and cash equivalents, accounts receivable and accounts payable approximate the fair values of those instruments due to the short-term nature of the instruments. The fair values of our receivables on preneed cemetery contracts are impracticable to estimate because of the lack of a trading market and the diverse number of individual contracts with varying terms. Our acquisition debt and Credit Facility (as defined in Note 11) and Senior Notes (as defined in Note 12) are classified within Level 2 of the Fair Value Measurements hierarchy.
At September 30, 2023, the carrying value and fair value of our Credit Facility was $187.3 million. We believe that our Credit Facility bears interest at a rate that approximates prevailing market rates for instruments with similar characteristics and therefore, the carrying value of our Credit Facility approximates fair value. We estimate the fair value of our acquisition debt utilizing an income approach, which uses a present value calculation to discount payments based on current market rates as of the reporting date. At September 30, 2023, the carrying value of our acquisition debt was $3.9 million, which approximated its fair value. The fair value of our Senior Notes was $342.6 million at September 30, 2023 based on the last traded or broker quoted price.
We identified investments in fixed income securities, common stock and mutual funds presented within the preneed and perpetual care trust investments categories on our Consolidated Balance Sheet as having met the criteria for fair value measurement. Where quoted prices are available in an active market, investments held by the trusts are classified as Level 1 investments pursuant to the three-level valuation hierarchy. Our Level 1 investments include cash, U.S. treasury debt, common stock and equity mutual funds. Where quoted market prices are not available for the specific security, then fair values are estimated by using quoted prices of similar securities in active markets or inputs other than quoted prices that can corroborate observable market data. These investments are fixed income securities, including U.S. agency obligations, foreign debt, corporate debt, preferred stocks, certificates of deposit and fixed income mutual funds and other investments, all of which are classified within Level 2 of the valuation hierarchy.
In addition, we have an investment in a limited partnership fund, whose fair value has been estimated using the net asset value per share practical expedient described in ASC 820-10-35-59, Fair Value Measurement of Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent) and therefore, has not been classified in the fair value hierarchy. The value of the investments in this fund cannot be redeemed because the investments include restrictions that do not allow for redemption within the first 12 months after acquisition. Our unfunded commitment for this investment at September 30, 2023 is $10.0 million.
Our receivables from preneed funeral trusts represent assets in trusts which are controlled and operated by third parties in which we do not have a controlling financial interest (less than 50%) in the trust assets. We account for these investments at cost. See Notes 8 and 9 to our Consolidated Financial Statements for the fair value hierarchy levels of our trust investments.
8.TRUST INVESTMENTS
Preneed trust investments represent trust fund assets that we are generally permitted to withdraw as the services and merchandise are provided to customers. Preneed funeral and cemetery contracts are secured by payments from customers, less amounts not required by law to be deposited into trust. These earnings are recognized in Other revenue on our Consolidated Statements of Operations, when a service is performed or merchandise is delivered. Trust management fees charged by our wholly-owned registered investment advisory firm (“CSV RIA”) are included as revenue in the period in which they are earned. Our investments are diversified across multiple industry segments using a balanced allocation strategy to minimize long-term risk. We do not intend to sell and it is likely that we will not be required to sell the securities prior to their anticipated recovery.
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Cemetery perpetual care trust investments represent a portion of the proceeds from the sale of cemetery property interment rights that we are required by various state laws to deposit into perpetual care trust funds. The income earned from these perpetual care trusts offsets maintenance expenses for cemetery property and memorials. This trust fund income is recognized in Other revenue.
Changes in the fair value of our trust fund assets (Preneed funeral, cemetery and perpetual care trust investments) are offset by changes in the fair value of our trust fund liabilities (Deferred preneed funeral and cemetery receipts held in trust and Care trusts’ corpus) and reflected in Other, net. There is no impact on earnings until such time the services are performed or the merchandise is delivered, causing the contract to be withdrawn from the trust in accordance with state regulations and the gain or loss is allocated to the contract.
We rely on our trust investments to provide funding for the various contractual obligations that arise upon maturity of the underlying preneed contracts. Because of the long-term relationship between the establishment of trust investments and the required performance of the underlying contractual obligations, the impact of current market conditions that may exist at any given time is not necessarily indicative of our ability to generate profit on our future performance obligations.
Preneed Cemetery Trust Investments
The components of Preneed cemetery trust investments on our Consolidated Balance Sheet are as follows (in thousands):
December 31, 2022September 30, 2023
Preneed cemetery trust investments, at market value$98,269 $95,632 
Less: allowance for contract cancellation(3,204)(3,049)
Preneed cemetery trust investments$95,065 $92,583 
The cost and market values associated with preneed cemetery trust investments at September 30, 2023 are detailed below (in thousands):
Fair Value Hierarchy LevelCostUnrealized
Gains
Unrealized
Losses
Fair Market
Value
Cash and money market accounts1$9,177 $ $ $9,177 
Fixed income securities:
U.S. agency obligations2803  (75)728 
Foreign debt29,246 959 (351)9,854 
Corporate debt215,058 109 (4,872)10,295 
Preferred stock211,524 528 (1,466)10,586 
Certificates of deposit279